TransUnion: 1.5 Million Homeowners Negatively Impacted by Mortgage Crisis Could Re-Enter Housing Market in Next Three Years

More than 1.5 million home buyers negatively impacted by the financial crisis could potentially re-enter the mortgage market in the next three years, according to a new study from TransUnion. This population of consumers negatively impacted by the financial crisis – commonly known as boomerang buyers – was defined by TransUnion as being 60+ days delinquent on a mortgage loan, having lost a mortgage through foreclosure, short sale or other non-satisfactory closure, or having a mortgage loan modification.

TransUnion’s study found that approximately 700,000 boomerang buyers may be able to re-enter the housing market in 2015. Over the next five years, TransUnion anticipates 2.2 million boomerang buyers could re-enter the market.

The study analyzed the overall U.S. credit-active population at the end of 2006 (the end of the mortgage Bubble), the end of 2009 (the end of the Burst) and in 2014 to determine consumers’ ability to re-enter the mortgage market.

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“Based on our study findings, the Burst had a significant and dramatic impact on many consumers’ ability to re-enter the mortgage market after suffering through the downturn. It’s been over seven years since the beginning of the mortgage crisis; this is significant because many derogatory items, such as foreclosures and short sales can prevent consumers from qualifying for a new mortgage for a period of time. The timing of that challenge can vary: for example, four years must pass after a short sale and seven years must pass after a foreclosure. As consumers responsibly manage their credit and pass these milestones, we anticipate a tide of newly mortgage-eligible consumers entering the market.”

Joe Mellman, vice president and head of TransUnion’s mortgage group

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TransUnion analyzed, on a depersonalized basis, every consumer it could longitudinally track between 2006 and 2014, which came to 180 million consumers. During the mortgage Bubble in 2006, 43% of that population, or 78 million consumers, had a mortgage. Approximately 8% of these consumers had a negative impact on their mortgage – 60+ days delinquent, foreclosure, etc. – between the Bubble and Burst.

TransUnion analyzed this impacted population of 7 million consumers to determine how many consumers had recovered to meet agency credit underwriting guidelines by the close of 2014. The study found that only 18% of consumers impacted had recovered by December 2014. However, the study found that 2.2 million of the remaining 5.7 million unrecovered consumers could meet agency underwriting guidelines over the next five years.

Consumers Who Could Meet Agency Selling Guidelines in the Next Five Years

2015

2016

2017

2018

2019

700,000

300,000

500,000

400,000

300,000

According to TransUnion’s study, 42% of the recovered consumers currently have a mortgage, while 58% of the recovered consumers have not yet re-entered the mortgage market.

“As boomerang buyers who experienced foreclosures or other negative impacts become eligible to re-enter the mortgage market, they may not immediately do so if they are not aware they are eligible again, or feel daunted by their prior experience,” Mellman said. “Lenders can help consumers ease this transition with credit education programs addressing consumer eligibility, and help them better understand their borrowing options.”

Credit Score Impact

The study also looked at how big of an impact the mortgage crisis had on consumer credit scores. Between the Bubble and the Burst, 39 million consumers dropped at least one credit score tier. As of 2014, 16 million of these consumers had recovered sufficiently to reach at least the risk tier they were in before the Burst.

Despite the significant impact on consumer credit scores, a marked improvement in scores has also been observed for certain credit score risk tiers. The study found that 7 million more consumers have moved into prime or better risk categories (VantageScore® 3.0 credit score of 661 and above) between the Burst in 2009 and the close of 2014. Additionally, 8 million consumers left the subprime risk tier (VantageScore® 3.0 credit score of 600 or below) to enter higher risk tiers during the same timeframe.

Credit Risk Tier Distribution of Consumers from Bubble to Present

Bubble (2006)

Burst (2009)

Current (2014)

Super Prime (780+)

45 million

49 million

53 million

Prime Plus (721-780)

35 million

32 million

31 million

Prime (661-720)

29 million

26 million

30 million

Near Prime (601-660)

24 million

24 million

25 million

Subprime (600 and below)

47 million

50 million

42 million

*Credit scores are based on VantageScore® 3.0 risk tiers

“An important question lenders face is when to re-engage with consumers who have been challenged managing credit in the past. Despite the negative impact of the mortgage crisis on many consumers, we’re seeing promising recovery as consumers shift to lower risk tiers,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit. “The pronounced decline in the number of subprime consumers indicates that time has diminished the impact of Burst-era derogatory items on consumer credit. While some lenders may be hesitant to offer loans to these impacted consumers, our data show these consumers are becoming better credit risks. Our study puts a framework around the re-engagement question relative to the mortgage crisis, and that’s good news for both lenders and consumers alike.”

Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.